Malaysia is a member of the Commonwealth of Nations and as a result, its legal framework draws heavily from the English legal system.

Malaysia has a written Federal Constitution which sets out clear parameters against which legislation is formulated and passed. In this regard, the common law of the United Kingdom has been incorporated into Malaysian law through an act of Parliament namely, the Civil Law Act 1956 (Act 67). Section 3 of the Civil Law Act 1956 provides that the Malaysian courts shall apply the common law and the rules of equity as administered in England on 7 April 1956, i.e. just prior to Malaysia’s independence in 1957.

Malaysia has since developed its own body of common law, albeit based on the legal principles expounded under the English common law. Case law from other Commonwealth jurisdictions is considered by the Malaysian courts as the persuasive authority in the development of Malaysian common law.

Malaysia is a federation comprising 13 states and certain federal territories. Its legislation is therefore divided into federal laws which apply throughout Malaysia and state laws which apply in the state in which they are enacted. There is also another component of Malaysian law, i.e. Syariah law, which is largely state-regulated and applied only to Muslims in respect of personal laws such as matrimonial, inheritance, succession and apostasy.

There are two types of courts in Malaysia: the civil and criminal courts; and the Syariah courts. That said, Syariah courts do not have a role in determining commercial disputes, even those relating to Islamic finance.

Only lawyers admitted to the Malaysian Bar have the right to appear before the courts although it is possible for foreign lawyers to apply for ad hoc admission on a case-by-case basis. However, such ad hoc admission is rarely granted. Lawyers qualified to appear before the civil courts must obtain separate qualifications to have rights of audience in the Syariah courts.

As for the hierarchy of the civil courts in Malaysia, they are divided into the superior courts and the subordinate courts.

The subordinate courts are divided into Magistrates and Sessions courts, which have different monetary jurisdictional limits (MYR100,000 for Magistrates courts and MYR1,000,000 for Sessions courts). Appeals against decisions of the subordinate courts are brought to the High Court.

There are two High Courts in Malaysia: the High Court of Malaya (which covers Peninsular Malaysia); and the High Court of Sabah and Sarawak (which covers East Malaysia). In addition to its appellate functions, the High Court also serves as a court of first instance with unlimited original monetary jurisdiction and in respect of specific types of claims including judicial review, company law remedies and arbitration-related claims.

Rights of appeal (which may, in some cases, be subject to leave thresholds) lie from decisions of the High Court to the Court of Appeal, which is strictly an appeals court with no original jurisdiction. Appeals against decisions arising from the subordinate courts end at the Court of Appeal, while decisions arising from the High Court may be appealed further to the apex court of Malaysia, the Federal Court. All civil appeals to the Federal Court are subject to a leave filter.

The Federal Court also has original jurisdiction to hear certain matters, including constitutional issues.

A table setting out the hierarchy of civil and commercial courts in Malaysia is as follows:

Efficiency and integrity

In Malaysia, under the Federal Constitution, the judiciary is separate and distinct from the legislature and the executive. Superior court judges are constitutionally guaranteed security of tenure.

In 2013, the Malaysian courts introduced Key Performance Indicators (“KPIs”) in the administration of court cases. This has increased efficiency in the disposal of cases by setting a target timeline to conclude cases; to wit, nine months in the High Courts and Sessions Courts and six months in the Magistrates Courts. This is the prescribed time period to complete a case from the filing of the action until judgment or order. Where there is an appeal, the prescribed time for conclusion is nine months from the filing of the notice of appeal.

Whilst KPIs are not “hard and fast” rules imposed by the courts, there were initial fears that their introduction would reduce the administration of justice to mere statistical targets and that expediency would be preferred over due process and justice. However, the effects of these KPIs have been largely positive and the Malaysian courts now operate efficiently with minimal, if not no, backlog of cases without compromising the integrity of the process.

To improve efficiency, specialised courts including “New Civil Courts”, “New Commercial Courts”, “Admiralty Courts”, “Intellectual Property Courts”, “Construction Law Courts”, “Muamalat Court” and “Corruption Courts” have also been introduced in selected states throughout Malaysia. These efforts have also been largely successful in not only the efficiency of the disposal of cases but also in developing real expertise within the judiciary in these areas.

As at 30 September 2017, the pre-2016 cases pending are: in the Magistrates Court, 182 (civil and criminal); in the Sessions Court, 854 (civil and criminal); in the High Court, 1868 (civil and criminal); in the Court of Appeal, 55; and in the Federal Court, 59.1 This is a substantial reduction of the number of backlogged cases.

Another notable measure introduced for the purpose of simplifying and expediting the litigation process was the introduction of common rules of procedure by the Rules of Court 2012 (“the ROC 2012”) which amalgamated the rules of practice for the subordinate courts and the High Court into a single uniform set of rules, streamlining the procedures to be applied.

A key rule developed under these Rules was Order 34, which arms the courts with significant and far-reaching powers of pre-trial case management to give orders and directions for a “just, expeditious and economical disposal of proceedings”, and which allowed the courts to be more proactive in ensuring that cases move efficiently and are not held up by dilatory tactics employed by litigants.

Courtrooms have been equipped with electronic equipment for real-time digital audio-visual recordings of the proceedings, which are then made available to the parties.

Privilege and disclosure

The law on “privilege” and “without prejudice” documents is set out in Section 23 of the Evidence Act 19502 which provides that in civil cases, admissions are not to be considered as evidence if made either upon an express condition that they are not to be disclosed, or under circumstances inferring such an agreement between the parties. In short, this privilege applies to any communication and any document made during the course of negotiations between parties that are earnestly seeking settlement.

Not all documents marked “without prejudice” are automatically privileged. Two conditions apply across the board in determining whether a communication or a document is privileged:

the parties must be in dispute and that dispute led them to negotiate with one another; and

the communication between the parties must contain suggested terms that would finally lead to the settlement of the dispute.3

Thus, the nature of the communication or document is more important than the label or the absence of the label “without prejudice” on a document, which will not in itself preclude it from being privileged. For example, where the initial letter is labelled “without prejudice”, it may be implied that subsequent letters, not bearing this mark, will also be privileged4 unless there is clear indication in the correspondence to show that the privilege is not claimed.5

A “without prejudice rule” communication will lose its privileged status once the negotiation results in a settlement,6 when both parties consent to waive the privilege,7 when there is in truth no negotiation at all,8 or when the evidence shows perjury, blackmail or other serious and unambiguous impropriety.9

Other situations where privilege may arise are envisaged under sections 121 to 132 of the Evidence Act 1950. In summary:

A judge is not bound to answer any questions as to how he carries out his duty as a judge or as to anything of which he has knowledge in court in his capacity as a judge.10

Except in suits involving married persons, prior consent must be obtained from a married person for the disclosure of marital communication11 – however, if the acts and the communications were inextricably connected and cannot be separated, the married person may be compelled to give evidence.12

Permission/approval has to first be obtained from the officer in charge, subject to the administration of a Minister or Chief Minister if a person wishes to produce or give evidence from any official records relating to state affairs which are yet to be published.13

A public officer is not bound to disclose communications conveyed to him in official confidence if the disclosure to be made is against the public interest.14

An advocate and solicitor is barred from disclosing any communication between him and his client in the course and for the purpose of his or her employment by, or on behalf of, his or her client, and from disclosing any communication made to him or her by his or her client – this also extends to clerks or servants of the advocates.15

The new Order 24 of the ROC 2012 removes the automatic right to discovery in legal proceedings. Order 24, Rule 3 of the ROC 2012 provides that discovery can only be carried out if an order of court has been given in respect thereof.16 The court may order the discovery of the following documents:

documents that the party relies on or will rely on; and

documents that could adversely affect the party’s case, adversely affect another party’s case, or support another party’s case.

Discovery is ordered for relevant documents. An order for discovery is subject to the test of “necessity”. The ROC 2012 does not provide a specific period of time within which discovery must take place. This is handled through courts’ directions during case management and will depend on the volume and complexity of the documents involved.

In Malaysia, an action against a third party for discovery is possible in accordance with the principles in the case of Norwich Pharmacal Co v. Customs and Excise Commissioners.17

If a party refuses to obey a court order for discovery, the court may dismiss the action, strike out the defence, or order judgment in default of discovery and make any such order as it thinks fit.18 A party in default of a discovery order may also be liable to committal for contempt of an order of court.19

A party to whom documents are disclosed during the course of discovery shall be deemed to have impliedly undertaken not to use the same for any purpose other than the proceedings.

Discovery is, of course, subject to privilege. Once privilege is established, the right to withhold the document or the information is an absolute right.

Costs and litigation funding

Courts are empowered to order costs in proceedings before them. The general rule is that costs follow the event, i.e. the successful party will be entitled to its costs in respect of the proceedings, although there are exceptions to this. Courts may also make “no order as to costs”, or order parties to bear their own costs.

An example where the general rule does not apply would be where a plaintiff is successful but the court nevertheless considers that the action was unnecessary or protracted by the plaintiff’s own conduct. In such a situation, the court may make no order as to costs, or potentially order the successful plaintiff to pay the defendant’s costs.

The quantum of costs to be awarded is at the discretion of the court. In the subordinate courts, the costs are generally fixed according to the cost schedule found in Order 59 Rule 23 of the ROC 2012.

In the superior courts, costs are ordinarily awarded on a “party to party” basis and are assessed and determined by considering a number of factors, including the complexity, difficulty and novelty of the issues, the amount of work reasonably required, the importance of the case and value of the claim.

The superior courts are empowered to order costs in a litigation to be paid on a full indemnity basis but in practice, this power is rarely invoked.

Litigation funding is presently not widespread in Malaysia. It may potentially be a basis for a defendant to seek security for costs against a “nominal” plaintiff under Order 23 of the ROC 2012. Furthermore, the rule against champerty survives as part of the common law applied in Malaysia.

As far as advocates and solicitors are concerned, section 112 of the Legal Profession Act 1976 (“the LPA”) expressly prohibits “contingency fee arrangements”, i.e. any agreement that provides that payment will only be made in the event of success of the legal action.

Recent attempts to promote litigation funding in the context of arbitration proceedings via proposed amendments to the Arbitration Act 2005 were not successful and it remains to be seen how this particular practice will develop in the context of Malaysian dispute resolution in the future.

Interim relief

Courts are empowered to grant interim relief, whether in aid of litigation under their purview, arbitrations or litigation in other jurisdictions. The courts commonly are widely familiar with the grant of prohibitory and mandatory interim injunctive relief. Generally, in cases where prohibitory interim injunctive relief is sought, American Cyanamid principles are applied.

Common law principles as to the grant of injunctive relief are complemented by Orders 29 and 92 of the ROC 2012, paragraph 6 of the Schedule to the Courts of Judicature Act 1964, and Section 50 and Chapter IX of the Specific Relief Act 1950.

Freezing orders are also commonly granted in accordance with Mareva guidelines, as are pre-action discovery orders. Other types of interim relief that may be granted include the appointment of receivers over assets of the defendants.

There are, however, certain circumstances where injunctions may not be granted. For example, an injunction will not be granted against the Government where it would interfere with the public duties of any department of the Government of Malaysia.

Enforcement of foreign judgments

Foreign judgments may be enforced in the Malaysian courts by way of: (1) a common law action, i.e. an action based on the foreign judgment; or (2) a summary application under the Reciprocal Enforcement of Judgments Act 1958 (“REJA”), provided that the foreign judgment is obtained from a court recognised in the schedule thereto.

If a foreign judgment is to be registered as a judgment in Malaysia under REJA, it is important the following questions be asked:

Is the country listed under the First Schedule of REJA?20

Is the judgment that of a superior court?21

Is it a final judgment of a superior court?22

Is the party seeking to enforce the judgment a judgment creditor within the meaning of Section 2 of REJA?23

Is the judgment contrary to public policy?24

Is the notice of registration of judgment served?25

The registration of a foreign judgment and the procedure is contained in Order 67 of the ROC.

Once a foreign judgment is enforced as a Malaysian judgment, whether under the summary procedure of REJA or otherwise, there are several modes of execution which may be taken on the same, which are set out in Order 45 of the ROC 2012. They are:

Writ of seizure and sale.

Prohibitory orders.

Garnishee proceedings.

Writs of possession.

Charging order.

Committal proceedings.

Action on any judgment shall not be brought after the expiration of 12 years from the date on which the judgment became enforceable.26 Order 46 Rule 2(1)(a) of the ROC 2012 clearly provides that if six years pass from the date of judgment, leave of the court is required for execution proceedings to be brought.27

Cross-border litigation

Malaysian courts recognise provisions for the choice of governing law in a contract but will not give effect to such a clause if it is against Malaysian public policy.

In Joerg Hugo Schmidt v. Menk Sdn Bhd,28 the choice of law clause provided that the applicable law was German employment law and the High Court held that “if necessary, the Malaysian courts will have to decide on the merits of German law with the help of respective foreign law experts”.

Also, in the recent Federal Court case of Scandinavian Bunkering (Singapore) Pte Ltd v. MISC Bhd,29 where the contract stipulated English law as the law governing the agreement, the Federal Court held that English law governed questions of substantive law (general damages and special damages issue) but Malaysian law still governed questions of procedural law (the quantification of general damages).

Malaysian courts retain a discretion to hear a claim even where parties in their contract have agreed to refer the dispute to a foreign court.30 In this regard, Malaysian courts are guided by the principles of forum non conveniens laid out in The Eleftheria,31 which can be summarised as follows:

In which country is the evidence on the issues of fact situated and what is the effect of that on the relative convenience and expense of trial between the Malaysian and foreign courts?

Does the law of the foreign court apply and, if so, does it differ materially from Malaysian law?

With which country/countries are the parties connected, and how closely?

Do the defendants genuinely desire trial in the foreign country, or are they only seeking procedural advantages?

Would the claimants be prejudiced or become unlikely to have a fair trial if they were sued in the foreign court as they would be deprived of security for their claim? Would they be unable to enforce any judgment obtained, be faced with limitation of time that is not applicable in Malaysia, or for political, racial, religious or other reasons?

Malaysia is not party to any international conventions for mutual assistance for service of process, such as the Hague Service Convention. However, Malaysia civil procedure does allow for service of Malaysian court process out of the jurisdiction and vice versa.

Where a foreign party obtains leave from its local courts to serve proceedings on a party in Malaysia, that foreign party is required to adhere to procedures under Order 10 of the ROC 2012 in order to effect service in Malaysia.32

The Malaysian courts may also assist in the taking of evidence of a witness in Malaysia for use in court proceedings in another jurisdiction – Order 66 of the ROC 2012. The Malaysian courts have the power to make, in relation to a matter pending before a court or tribunal in a place outside the jurisdiction, orders for the examination of witnesses and for attendance and for production of documents, and to give directions. An application for such an order is to be made ex parte (or without notice) by a person duly authorised to make the application on behalf of the foreign court or tribunal in question, and shall be supported by affidavit.33

International arbitration

Malaysia acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“New York Convention”) in 1985.

Presently, arbitration in Malaysia is regulated by one piece of legislation, the Malaysian Arbitration Act 2005 (“AA 2005”), which is based on UNCITRAL Model Law 1985 and largely modelled after the New Zealand Arbitration Act 1996.

The AA 2005 makes no distinction between commercial arbitration and non-commercial arbitration. Both domestic and international arbitrations seated in Malaysia are governed by the same regime under the AA 2005; there are provisions in Part III of the AA 2005 that generally govern domestic arbitration only, although parties are at liberty to “opt-out” of their application in cases of domestic arbitration, and “opt-in” to their application in cases of international arbitration.

The process of recognition and enforcement of arbitral awards (which includes awards made in member states of the New York Convention) in Malaysia essentially follows the Model Law and New York Convention regime whereby passive remedies against enforcement are limited to those grounds contained in Article V of the New York Convention.

Procedurally, applications for enforcement may be made to a High Court in Malaysia on a “without notice” basis similar to the regimes available in Singapore and the United Kingdom.

The Asian International Arbitration Centre (formerly known as the Kuala Lumpur Regional Centre for Arbitration) (“AIAC”) (website: https://aiac.world) is the main arbitral institute in Malaysia. The AIAC has been gaining popularity internationally as both an administrative body and venue for arbitrations in the past decade. AIAC provides wide-ranging ADR services and, in addition to its conventional rules, also has as part of its services, specific procedures in place for emergency arbitration, fast-track arbitration, arbitration of Islamic commercial disputes and domain name dispute resolution. The Director of the AIAC is the default appointing body under the AA 2005.

Recent developments

Since coming into force, the AA 2005 has been substantially amended twice, first in 2011 and more recently in 2018 (with the latter amendments coming into force on 8 May 2018), largely to bring the AA 2005 in-sync with updates to the Model Law in 2006, particularly relating to the more extensive definition of arbitration agreements provided for in Option 1 of Article 7 of the Model Law and the more expansive provisions regarding interim relief under Articles 17A to J of the Model Law.

Malaysian courts have also not shied away from setting aside arbitral awards made in Malaysia wherein tribunals have exceeded their mandate under an arbitration agreement (see: the Federal Court’s decision in Thai-Lao Lignite Co Ltd & Anor v. Government of the Lao People’s Democratic Republic[2017] 9 CLJ 273).

Other key developments in 2018 have been the introduction of section 3A of the AA 2005, which makes it clear that parties are free to choose their own representation in arbitration, and amendments to section 33 of the AA 2005 that expressly confer, unless excluded by the parties, power to a tribunal to award simple or compound interest.

The introduction of section 3A of the AA 2005 underscored Malaysia’s commitment to support parties’ choice of representation, which had been reflected some years earlier in 2013 by amendments to Malaysia’s Legal Profession Act 1976, which permits non-Malaysian legal practitioners to represent parties in arbitration in Malaysia.

Another major development by the 2018 amendments to the AA 2005 has been the abolition of section 42 of the AA 2005, which was the component of Part III that allowed for post-award references to the courts on questions of law (akin to appeals on questions of law under section 69 of the UK Arbitration Act 1996). As a consequence of this amendment, moving forward, the only remaining avenue for an active challenge to an arbitral award made in Malaysia would be to apply to set aside under Article 34 of the Model Law-type regime.

Mediation and ADR

Malaysia has also actively promoted mediation as a means of alternative dispute resolution.

The Malaysian Mediation Act 2012 (“MMA 2012”) provides for express recognition of the binding nature of settlement agreements arising from mediation, confidentiality of mediation communications and for general immunity from suit of mediators (save for instances where fraudulent or wilful misconduct is involved).

The Malaysian Bar Council established the Malaysian Mediation Centre in 1999 which organises training and accreditation of its panel of mediators. The AIAC also provides mediation services and has its own panel of accredited mediators. Industry-specific mediation bureaux include the Financial Mediation Bureau, which handles complaints from policyholders against insurance companies, and the Banking Mediation Bureau, which provides for consumer disputes with banks.

The conciliation process is a mandatory precursor to claims to the Industrial Court under the Industrial Relations Act 1967. Mediation is encouraged but not compelled upon litigants in court proceedings. Malaysian courts provide mediation services and facilities, with judges and registrars serving as mediators.

In 2014, statutory adjudication of payment claims in the construction sector was introduced in Malaysia upon the coming into force of the Adjudication: Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”).

TDR (Adjudication)

With the introduction of CIPAA 2012, unpaid parties under written construction contracts seeking payment of their claims, are conferred a statutory right to refer these claims to adjudication and to obtain adjudication decisions, which may be enforced as judgments upon a summary process application to the Malaysian courts under the framework of CIPAA 2012. As is the case in other jurisdictions with statutory adjudication regimes, this mode of dispute resolution is considered “temporary dispute resolution” (“TDR”) as it may be resorted to without prejudicing the parties’ rights to seek final determination of their disputes by way of arbitration or court proceedings.

CIPAA 2012 applies to every construction contract made in writing (as defined under section 2 thereof) relating to construction work carried out wholly or partly within Malaysia. Therefore, non-Malaysian contractors or construction industry service providers engaged in construction works carried out in Malaysia may potentially avail themselves of this statutory remedy as well.

Adjudication under CIPAA 2012 is administered by the AIAC. In the four-odd years of the operation of CIPAA 2012, adjudication has quickly become the preferred “first stop” for the making of construction contract-related claims in Malaysia, largely due to AIAC’s efficiency in administering the adjudication process and a judiciary that is supportive of the statutory adjudication process (see, for example, the Court of Appeal’s recent decision in Martego Sdn Bhd v. Arkitek Meor & Chew Sdn Bhd & another appeal [2018] 2 CLJ 163).

Regulatory investigation

In Malaysia, various administrative bodies and tribunals with regulatory and/or investigative functions operate to deal with business or consumer affairs.

The Central Bank of Malaysia, which oversees and regulates payment systems infrastructure and the banking business, provides a channel for consumer complaints against banking institutions via a dedicated “Complaints Unit”.

Taxpayers aggrieved by tax assessment may appeal against such assessments to Special Commissioners of Income Tax within the framework of the Malaysian Income Tax Act 1967.

Apart from the Central Bank and the Inland Revenue Board, examples of regulatory bodies that are actively engaged in the enforcement of laws under their purview include: (1) the Malaysian Companies Commission (which monitors, regulates and enforces the law relating to corporations registered in Malaysia); (2) the Malaysian Securities Commission (which regulates capital markets and which is empowered to enforce securities laws under its purview and investigate breaches); (3) the Malaysian Competition Commission (which is responsible for the implementation, monitoring and enforcement of Malaysian competition laws under our Competition Act 2010); and (4) the Commissioner of Personal Data Protection (which is responsible for the implementation, monitoring and enforcement of personal data protection under the Personal Data Protection Act 2010).

There are a number of statutorily established tribunals that determine claims by aggrieved parties in specific areas (within the parameters and monetary limits prescribed by the relevant laws) such as the Tribunal for Consumer Claims,34 the Tribunal for Homebuyers’ Claims,35 and the Industrial Court.36

Generally, decisions by administrative bodies may be reviewed by the Malaysian courts by judicial review. As is the case in many other countries, the courts in Malaysia employ a two-stage process of first ascertaining whether aggrieved parties ought to be granted permission (or leave) to apply for judicial review of the decision complained of, and then only if permission is granted, going on to review the decision complained against.

Santong Trading Pte Ltd v. Hj Industries Sdn Bhd [1996] 3 CLJ 95, “the court held that “final” is intended to mean and should be construed as meaning final in the sense of admitting no further disputation”.

Established under Section 85 of the Consumer Protection Act 1999. The primary function is to hear and determine claims filed by consumers under the Consumer Protection Act 1999. The Tribunal provides an alternative forum for consumers to file claims in an easy, simple, inexpensive and speedy manner.

Established under Section 16B of the Housing Development (Control and Licensing) Act 1966. The primary function is to hear and determine claims for any loss incurred or any matter concerning a person’s interests as a homebuyer (such as late delivery, poor workmanship like leakage, cracks, unsafe wiring and crumbled cement).

Established under Section 21 of the Industrial Relations Act 1967. The main objective of the Industrial Court is to act as the decision-maker in case of all industrial/trade disputes. “Trade disputes” means any disagreement between the employer and workman or employee which is connected with the employment or non-employment, or the terms of employment, or the conditions of work of such workman or employee leading to industrial action (i.e. General Strike, Occupation of Factories, Slowdown (or Go-slow)).

The content of this website is for general information purposes only and does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained herein. This material is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.
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